International strategic management is a comprehensive and ongoing management planning process aimed at formulating and implementing strategies that enable a firm to compete effectively internationally.

3Strategic Planning

The process of developing a particular international strategy is often referred to as strategic planning.

top-level executives at corporate headquarters

senior managers in domestic and foreign operating subsidiaries

4What Is Strategy?

Strategy is a plan of action that channels an organizations resources so that it can effectively differentiate itself from competitors and accomplish unique and viable goals.

Managers develop strategies based on the organizations strengths and weaknesses relative to the competition and assessing opportunities.

Managers decide which customers to target, what product lines to offer, and with which firms to compete.

5Strategy in an International Context

Strategy in an international context is a plan for the organization to position itself vis-a-vis its competitors, and resolve how it wants to configure its value chain activities on a global scale.

Its purpose is to help managers create an international vision, allocate resources, participate in major international markets, be competitive, and perhaps reconfigure its value chain activities given the new international opportunities.

6Strategy Should Pinpoint to Actions

Formulate a strong international vision

Allocate scarce resources on a worldwide basis

Participate in major markets

Implement global partnerships

Engage in global competitive moves

Configure value-adding activities on a global scale

7Strategic Planning

Developing international strategy is more complex than developing a domestic one

Managers need to consider various factors, such as

Culture

Political economy

Governmental interference

Labor relations

Coordination of implementation

8Strategic Planning

International businesses have the ability to exploit three sources of competitive advantages not available to domestic firms

Bartlett and Ghoshal argue that managers should look to develop, at one and the same time, global scale in efficiency, multinational flexibility, and the ability to develop innovations and leverage knowledge on a worldwide basis.

These three strategic objectives efficiency, flexibility, and learning must be sought simultaneously by the firm that aspires to become a globally competitive enterprise.

11Three Strategic Objectives

Efficiency lower the cost of operations and activities

Location efficiencies, economies of scale, economies of scale

Flexibility tap local resources and opportunities to help keep the firm and its products unique

Learning -- add to its proprietary technology, brand name and management capabilities by internalizing knowledge gained from international ventures.

12Trade-Offs among the Three Objectives

International business success is largely determined by the degree to which the firm achieves these three goals of efficiency, flexibility, and learning.

But it is often difficult to excel in all three areas simultaneously. Rather, one firm may excel at efficiency, while another may excel at flexibility, and a third at learning.

Sustainability over time is also a challenge.

13Multinational Strategies Dealing with the Global-Local Dilemma

Understand how global markets, products, competition, and risk influence the choice of a multinational strategy and the choice of a market-entry strategy.

14The IR Framework

The discussion about the pressures on the firm of achieving global integration and local responsiveness has become known as the integration-responsiveness (IR) framework.

15Integration-Responsiveness Framework

The Integration-Responsiveness Framework summarizes two basic strategic needs to integrate value chain activities globally, and to create products and processes that are responsive to local market needs.

16Multinational Strategies Dealing with the Global-Local Dilemma

Global-local dilemma

a fundamental strategic dilemma faced by all multinational companies when competing internationally

Pressures to respond to the unique needs of the markets in each country in which a company does business Local responsiveness option

Efficiency pressures that encourage companies to de-emphasize local differences and conduct business similarly throughout the world Global integration option

17Integration-Responsiveness Framework

Global integration means coordinating the firms value chain activities across many markets to achieve worldwide efficiency and synergy to take advantage of similarities across countries.

18Objectives of Global Integration

Global integration seeks economic efficiency on a worldwide scale, promoting learning and cross-fertilization within the global network, and reducing redundancy.

Global competitors. Global coordination is necessary to monitor and respond to competitive threats in foreign and domestic markets.

Availability of media that reaches customers in multiple markets. Firms now take advantage of the Internet and cross-national television to advertise their offerings in numerous countries simultaneously.

20Pressures for Local Responsiveness

Unique resources and capabilities available to the firm. Each country has national endowments that the foreign firm should access.

Diversity of local customer needs. Businesses, such as clothing and food, require significant adaptation to local customer needs.

Differences in distribution channels. Small retailers in Japan understand local customs and needs, so locally responsive MNEs use them.

21Pressures for Local Responsiveness

Local competition. When competing against numerous local rivals, centrally-controlled MNEs will have difficulty gaining market share with global products that are not adapted to local needs.

Cultural differences. For those products where cultural differences are important, such as clothing and furniture, local managers require considerable freedom from HQ to adapt the product and marketing.

Host government requirements and regulations. When governments impose trade barriers or complex business regulations, it can halt or reverse the competitive threat of foreign firms.

The firm views international business as separate from, and secondary to, its domestic business. Such a firm may view international business as an opportunity to generate incremental sales for domestic product lines.

Products are designed with domestic customers in mind, and international business is sought as a way of extending the product lifecycle and replicating its home market success.

The firm expects little knowledge flows from foreign operations.

26Multi-Domestic Strategy(Multi-Local Strategy)

Headquarters delegates considerable autonomy to each country manager allowing him/her to operate independently and pursue local responsiveness.

With this strategy, managers recognize and emphasize differences among national markets. As a result, the internationalizing company allows subsidiaries to vary product and management practices by country.

Country managers tend to be highly independent entrepreneurs, often nationals of the host country. They function independently and have little incentive to share knowledge and experiences with managers elsewhere.

Products and services are carefully adapted to suit the unique needs of each country.

27Advantages of Multi-Domestic Strategies

If the foreign subsidiary includes a factory, locally produced goods and products can be better adapted to local markets.

The approach places minimal pressure on headquarters staff because management of country operations is delegated to individual managers in each country.

Firms with limited international experience often find multi-domestic strategy an easy option as they can delegate many tasks to their country managers (or foreign distributors, franchisees, or licensees, where they are used).

28Disadvantages of Multi-Domestic Strategy

The firms foreign managers tend to develop strategic vision, culture, and processes that differ substantially from those of headquarters.

Managers have little incentive to share knowledge and experience with those in other countries, leading to duplication of activities and reduced economies of scale.

Competition may escalate among the subsidiaries for the firms resources because subsidiary managers do not share a common corporate vision.

It leads to inefficient manufacturing, redundant operations, a proliferation of products designed to meet local needs, and generally higher costs of international operations than other strategies

29Global Strategy

With global strategy, the headquarters seeks substantial control over its country operations in an effort to minimize redundancy, and achieve maximum efficiency, learning, and integration worldwide.

In the extreme case, global strategy asks why not make the same thing, the same way, everywhere? It favors greater central coordination and control than multi-domestic strategy, with various product or business managers having worldwide responsibility.

Activities such as RD and manufacturing are centralized at headquarters, and management tends to view the world as one large marketplace.

30Advantages of Global Strategy

Global strategy provides management with a greater capability to respond to worldwide opportunities

Increases opportunities for cross-national learning and cross-fertilization of the firms knowledge base among all the subsidiaries

Creates economies of scale, which results in lower operational costs.

Can also improve the quality of products and processes -- primarily by simplifying manufacturing and other processes. High-quality products promote global brand recognition and give rise to customer preference and efficient international marketing programs.

31Limitations of Global Strategy

It is challenging for management, particularly in highly centralized organizations, to closely coordinate the activities of a large number of widely-dispersed international operations.

The firm must maintain ongoing communication between headquarters and the subsidiaries, as well as among the subsidiaries.

When carried to an extreme, global strategy results in a loss of responsiveness and flexibility in local markets.

Local managers who are stripped of autonomy over their country operations may become demoralized, and lose their entrepreneurial spirit.

32Transnational Strategy A Tug of War

A coordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning.

Transnational strategy combines the major advantages of multi-domestic and global strategies, while minimizing their disadvantages.

Exploiting scale economies by sourcing from a reduced set of global suppliers concentrating the production of offerings in relatively few locations where competitive advantage can be maximized.

Organizing production, marketing, and other value-chain activities on a global scale.

Optimizing local responsiveness and flexibility.

Facilitating global learning and knowledge transfer.

Coordinating competitive moves --how the firm deals with its competitors, on a global, integrated basis.

34How IKEA Strives for Transnational Strategy

Some 90 of the product line is identical across more than two dozen countries. IKEA does modify some of its furniture offerings to suit tastes in individual countries.

IKEAs overall marketing plan is centrally developed at company headquarters in response to convergence of product expectations but the plan is implemented with local adjustments.

IKEA decentralizes some of its decision-making, such as language to use in advertising, to local stores.

35Difficulty of Implementing Transnational Strategy

Most firms find it difficult to implement transnational strategy.

In the long run, almost all firms find that they need to include some elements of localized decision-making because each country has idiosyncratic characteristics. Few people in Japan want to buy a computer that includes an English-language keyboard.

While Dell can apply a mostly global strategy to Japan, it must incorporate some multi-domestic elements as well. Even Coca-Cola, varies its ingredients slightly in different markets. While consumers in the U.S. prefer a sweeter Coca-Cola, the Chinese want less sugar.

36Components of International StrategyDistinctive competenceScope of operationsResource deploymentSynergy 37Distinctive Competence

Answers the question

What do we do exceptionally well, especially as compared to our competitors?

Represents important resource to the firm

38Scope of Operations

Answers the question

Where are we going to conduct business?

Aspects of scope

Geographical region

Market or product niches within regions

Specialized market niches

39Resource Deployment

Answers the question

Given that we are going to compete in these markets, how will we allocate our resources to them?

Resource specifics

Product lines

Geographical lines

40Synergy

Answers the question

How can different elements of our business benefit each other?

Goal is to create a situation where the whole is greater than the sum of the parts

41Developing International StrategiesStrategy formulationStrategy implementation 42Steps in International Strategy FormulationDevelop a mission statementPerform a SWOT analysisSet strategic goalsDevelop tactical goals and plansDevelop a control framework 43Levels of International Strategy 44Corporate Strategy

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